Finance and financial system

 

Finance is the provision of money at the time when it is needed. It is a system of monetary relations leading to formation, distribution and use of money in the process of its turnover between economic entities.

The financial system is the network of institutions through which firms, households and units of government get the funds they need and put surplus funds to work.

Savers and borrowers are connected by financial intermediaries including banks, thrift institutions, insurance companies, pension funds, mutual funds, and finance companies.

Finance in an economic system comprises two parts: public finance and finance of economic entities.

Public finance is the provision of money (by the community through taxes) to be spent by national and local government authorities on¹ projects of national and local benefit. It is a collective term for the financial flows and also the financial institutions of the public sector.

Public finance has the following four functions:

a) the provision of essential services;

b) the encouragement or control of particular sectors of the economy;

c) the implementation of social policy in respect of social services;

d) the encouragement of the growth of the economy as a whole.

The major instrument of any financial system is the budget. In a market-oriented economy, the budget is the most important tool for achieving national priority and goals through the allocation and distribution of resources, and the maintenance of stable macroeconomic environment.

The budget is an estimate of national revenue and expenditure for the ensuing fiscal year. When expenditure exceeds the revenue the budget has a deficit.

Revenue and expenditure forecasting is the most fundamental step in the process of budget preparation. Adequate planning of recurrent and capital expenditure depends critically on an accurate forecast of revenue availability. The determination of the expected overall deficit in the public sector and therefore the macroeconomic impact of fiscal policy requires accurate forecast of tax collection and expenditures.

In Ukraine, public finance is a sum of the budgets of all levels of subjects of the state, extrabudgetary and reserve funds.

An accurate revenue forecast is most critical at the national level of government but it is also important for all level governments because over the last several years they have worked with increasingly autonomous budgets.

Budget preparation at the national level involves a number of institutions. The Ministry of Finance (MoF) is the central coordinating institution in charge of compiling and presenting the budget. It has major inputs from² ministries in various sectors of the economy and the state tax bodies.

Notes

[1] money to be spent on … – засоби, що підуть на...

² It has major inputs from... – Воно отримує основну інформацію від...

¤ Vocabulary list :

public finance(s) – державні фінанси

provision – постачання, забезпечення

monetary relations – грошові відносини

formation – утворення, формування

distribution – розподіл

turnover – обіг, оборотність

economic entity – економічний суб’єкт

network of institutions – мережа закладів (організацій)

household – домашнє господарство

unit of government – державна організація

funds – фонди, засоби, гроші, капітал

surplus – надлишок, залишок

saver – вкладник

borrower – позичальник

intermediary – посередник

thrift institution – ощадний заклад

insurance company – страхова компанія

pension fund – пенсійний фонд

mutual fund – взаємний фонд

finance company – фінансова компанія

comprise – включати, охоплювати, містити

community – співтовариство, група осіб, що об’єднані за певними ознаками

tax – податок

government authorities – уряд, органи державної влади

benefit – вигода, користь, благо

financial flows – фінансові потоки

encouragement – підтримка, стимулювання, заохочення

particular – особливий, специфічний

implementation – виконання, здійснення

social policy – соціальна політика

budget – бюджет

goal – мета, завдання

maintenance of stable macroeconomic environment – підтримання стабільної макроекономічної ситуації

estimate – оцінка, кошторис

revenue(s) – доходи (державні)

ensuing – наступний, подальший

fiscal year – фінансовий рік

expenditure – витрати

deficit – дефіцит, нестача

forecasting – прогнозування

budget preparation – підготовка бюджету

adequate planning – розумне планування

planning of recurrent and capital expenditure – планування поточних та капітальних витрат

critically – вирішальним чином

accurate forecast – точний прогноз

availability – наявність

determination of the overall deficit – визначення, розрахунок загального дефіциту

macroeconomic impact – макроекономічний вплив

tax collection – стягування, збирання податків

extrabudgetary and reserve funds – позабюджетні та резервні фонди

increasingly – в більшій мірі, все більше

autonomous budget – автономний бюджет

to compile and present the budget – скласти та представити бюджет

 

? II. VOCABULARY EXERCISES

Ex.1. Find equivalents:

Ex.2. Enter correct correspondences in English or in Ukrainian:

ENGLISH	UKRAINIAN
public finance
	фінансові заклади
monetary relations
thrift institution
	ощадний заклад
government authorities
	в більшій мірі
	фінансові потоки
	розумне планування
fiscal year
maintenance of stable macroeconomic environment
	основний крок
	підготовка бюджету
planning of recurrent and capital expenditure
	автономний бюджет
accurate forecast
determination of the overall deficit
	макроекономічний вплив

 

Ex.3. Find English equivalents for the following Ukrainian phrases:

 

надання фінансових засобів; система грошових відносин; утворення, розподіл, використання грошових засобів; обіг між економічними суб’єктами; бути пов’язаними фінансовими посередниками; включати дві основні частини; бути витраченим державними та місцевими органами влади; контроль за окремими секторами економіки; стимулювання зростання економіки; засіб для досягнення національних цінностей та цілей; призначення та розподіл ресурсів; підтримання стабільної макроекономічної ситуації; оцінка державного доходу та витрат на наступний фінансовий рік; витрати перевищують прибутки; прогнозування витрат та прибутків; процес підготовки бюджету; планування поточних та капітальних витрат; потребувати точного прогнозу; очікуваний загальний дефіцит; макроекономічний вплив; центральний координуючий орган; відповідати за складання та представлення бюджету.

 

Ex.4. Fill in the blanks with prepositions, pronouns or conjunctions if necessary:

 

1. The financial system is the network … institutions … which firms, households … units … government get the funds they need … put surplus funds to work.

2. Savers … borrowers are connected … financial intermediaries

3. Finance … an economic system comprises two parts: public finance … finance … economic entities.

4. Public finance is the provision … money to be spent … national … local government authorities … projects … national … local benefit.

5. The budget is the most important tool … achieving national priority … goals … the allocation … distribution … resources.

6. The budget is an estimate … national revenue … expenditure … the ensuing fiscal year.

7. Revenue … expenditure forecasting is the most fundamental step … the process … budget preparation.

8. Adequate planning … recurrent … capital expenditure depends critically … an accurate forecast … revenue availability.

9. An accurate revenue forecast is most critical … the national level … government.

Ex.5. Fill in the blanks below with the appropriate terms from the list:

	term; budget; budget preparation; fiscal year; revenue; formation; economic system; economic entities; financial institutions; financial intermediaries; expenditure; distribution

 

1. The finance is a system of monetary relations leading to ______,use and _____ of money.

2. Savers and borrowers are connected by_______.

3. Finance in an ______comprises two parts: public finance and finance of ________.

4. Public finance is a collective _______for the financial flows and also the ______of the public sector.

5. _______ is the major instrument of any financial system.

6. The budget is an estimate of national ________ and expenditure for the ensuing _______.

7. Revenue and ______ forecasting is the most fundamental step in the process of _______.

Ex.6. Complete the following sentences:

 

1. Finance is the provision of ….

2. Finance is a system of ….

3. Finance in an economic system comprises … parts: ….

4. The budget is the most important tool for ….

5. The budget is an estimate of ….

6. The budget has a deficit when ….

7. In Ukraine, public finance is a sum ….

8. The Ministry of Finance (MoF) is ….

 

Ex.7. Match each term in Column A with its definition in Column B:

 

Ex.8. Answer the following questions:

1. What is finance?

2. What is a financial system?

3. What are savers and borrowers connected by?

4. What part does finance comprise?

5. What is public finance?

6. Name the main functions of public finance.

7. What is a country’s budget?

8. When the budget has a deficit?

9. What does the process of budget preparation include?

10. What is a public budget in Ukraine?

11. What is the central coordinating institution in compiling the budget?

Ex.9. Translate into English:

 

1. Фінанси – це система грошових відносин щодо формування, розподілу та використання коштів у процесі їхнього обігу між економічними суб’єктами.

2. Фінансова система – мережа закладів, через які фірми, домогосподарства та державні організації отримують засоби, яких вони потребують.

3. Зв’язок між вкладниками та позичальниками встановлюють фінансові посередники.

4. Фінанси складаються із державних фінансів та фінансів економічних суб’єктів.

5. Державні фінанси – це загальний термін для визначення фінансових потоків та фінансових закладів у державному секторі.

6. Підтримання та контроль окремих секторів економіки – це одне із завдань державних фінансів.

7. Бюджет – це один із найважливіших засобів для досягнення національних цілей та пріоритетів.

8. Прогнозування доходів та витрат є одним із найважливіших етапів у процесі підготовки бюджету.

9. У країні існує дефіцит, коли витрати перевищують доходи.

10. Міністерство фінансів є центральним координуючим закладом у складанні та представленні бюджету.

Ex 10. Write several paragraphs on the following using given words and word combinations:

a) finance and financial system:

monetary relations, formation, turnover, network of institutions, surplus funds, financial intermediaries, to comprise, public, economic entities, functions.

 

b) a budget as a major instrument of a financial system:

to achieve priorities, to allocate, to distribute resources, revenue, expenditure, to exceed, to prepare, to forecast, macroeconomic impact.

 

c) budget organization and budget preparation in Ukraine:

national, local, to approve, consolidated, source of revenue, expenditure responsibilities, autonomy.

 

d) revenue sources and revenue-sharing arrangements in Ukraine:

taxes, to transfer, subject of the republic, fixed revenue, regulating revenue, balance among budgets, to levy taxes, to meet the cost of services, insufficient, subventions, to grant assistance, “equalization”

— iii. ORAL Practice

A. Dialogue

1. Read and translate the dialogue in pairs:

 

Foreigner: Could you give me a general idea of budget organization and budget process in Ukraine?

Ukrainian: Certainly. First of all, by the budget organization we mean the structure of our budget system and its major components.

Foreigner: I suppose there is a close link between the budget organization and your state system, isn’t there?

Ukrainian: Yes, that’s true. Our system of governance is moving from a centralized one to a more decentralized. Our local authorities have been given considerable budget autonomy now.

Foreigner: Do you mean to say that some of expenditure responsibilities have been handed down from the national government to the local governments?

Ukrainian: Over the transition years a number of laws have been passed that grant local governments more autonomy in the budgetary matters. Thus governments at different level have their own revenue-raising sources now and use them at their discretion.

Foreigner: I’m clear now. And how is the budget process arranged?

Ukrainian: The budget process includes all activities of government bodies on formulation, consideration, approval and execution of the budget.

Foreigner: What governing bodies are involved in this process?

Ukrainian: As elsewhere, different governing bodies are involved in the process. The executive branch is responsible for the preparation and execution of the budget; budget consideration and approval is the responsibility of the legislative branch.

Foreigner: Are there any bodies controlling the execution of the budget?

Ukrainian: Of cource. First of all, it’s the Accounts Chamber, the National Treasury System.

Foreigner: It seems the State Government has done a lot to create a new budget system and to elaborate a new budget policy and methods of budget planning.

Ukrainian: You are absolutely right.

 

Vocabulary list:

budget organization – бюджетний устрій

budget process – бюджетний процес

system of governance – система управління

to hand down from … to – передавати від... до

expenditure responsibilities – обов’язки по витратам

approval – схвалення

revenue-raising sources – джерела отримання доходів

formulation – формування

consideration – розгляд

execution of the budget – виконання бюджету

to be involved – брати участь

elsewhere – в інших місцях, скрізь

executive branch – виконавча гілка влади

Accounts Chamber – Рахункова палата

National Treasury – система державного казначейства

elaborate – розробляти

 

2. Read the dialogue, translate the Ukrainian remarks into English and act it out:

 

Foreigner: It’s impossible to overestimate the importance of a good, balanced budget for a country.

Ukrainian: Я повністю з вами згоден. Бюджет – це головний фінансовий інструмент країни. Це план, прогноз, оцінка доходів та витрат, як правило, на один рік. Уряд повинен дуже ретельно розподіляти свої ресурси та точно прогнозувати свої доходи.

Foreigner: I know that Verkhovna Rada, the legislative body of your country, is considering the draft budget now. Deputies have submitted a lot of amendments to the draft budget about restructuring debts and paying off pensions and children benefits.

Ukrainian: Так. Депутати прагнуть, щоб були збільшені асигнування на розвиток промисловості, на соціальну сферу та регіональні програми.

Foreigner: Recently you’ve reached a new agreement on how to distribute tax revenues among the national members.

Ukrainian: Так, ми також ухвалили новий механізм здійснення трансфертів у регіони.

Foreigner: You’ve settled one of the basis budget issues. I’m sure your national budget will soon be approved.

 

3.Make up a dialogue on the following:

 

a) Imagine, that you take interview with the Ministry of Finance of Ukraine. Ask the most important and exiting questions and think what answers you could give on it.

b) Why is the revenue and expenditure forecasting so important in the budget preparation? What revenues are appropriated in the budget this year?

B. COMMUNICATIVE SITUATIONS

1. Round-table discussion. The question on the agenda is “Budget process in Ukraine”. Open such questions:

· What is crucial for budget preparation?

· What bodies are involved in the budget formulation?

· How is the budget process arranged in Ukraine now?

· What is the budget system existing in Ukraine now?

· Do you happen to know what classification of revenues is accepted now in Ukraine?

· What are the sources of revenues?

· How are the budget revenues spent?

· How is the budget execution controlled?

 

1. Say what you think about supervision over budget execution. If you have ever worked in the sphere of public finance, say what you think about the treasury system and budget execution supervision.

 

1. If you were the Prime minister, how would you spend the budget resources?

 

1. People have long used machines to help process data. Are computers used effectively in finance? Have you ever had any problems that were caused by computers? If so, describe the situation. How might the problems have been avoided if the computer system had been managed better?

¨READ AND DISCUSS

 

1. a) Supply the prepositions where necessary.

b) Write down six questions about the text.

 

Budgetary policy

 

The transformation of the economic and political systems in Ukraine has been accompanied... substantial reforms in the budget process, including budget preparation and classification, a new treasury system for budget execution and expenditure control, considerable autonomy of local governments in the formulation of their budgets.

On the whole, the budgetary policy in Ukraine is aimed at... attaining the efficient allocation of national resources, the desirable redistribution of income... the poorer groups in society, and the maintenance of a macroeconomic environment with stable prices, full employment and equilibrium in the balance of payments.

Accurate budget evaluation is more necessary now than ever before. The economic transition has led... drastic retrenching in public resources so there is a need to increase the efficiency with which public resources are used. Proper budget evaluation will provide critical information and feedback to policy makers... how well budget objectives are being attained... the implementation of the budget.

The transition... the market economy has significantly increased the complexity of interactions of the government with the private sector thus increasing the opportunities... misuses of funds and... corruption. For these reasons it is important that an effective and independent ex-post audit be carried... by the Accounts Chamber at all levels of government.

 

Words you may need:

accompany – супроводжувати

treasury system – система казначейства

formulation of the budget – підготовка бюджету

attain – домагатися, добиватися

equilibrium – рівновага

retrench – скорочувати, зменшувати (витрати)

feedback – зворотній зв’язок

objective – мета

misuses of funds – порушення у використанні коштів

ex-post audit – аудит (ревізія) використання коштів

 

2. Read the text and name the facts from the text which are new to you:

 

Treasury

 

Despite the many changes and reforms in Russia over the past few years, budget execution still presents significant problems. There is a lack of efficient control of expenditure, of information on extrabudgetary funds, of a well-defined procedure for the allocation of funds between different levels of government. In addition, there are problems with the budget classification, the obsolete system of public accounts, weak debt and cash management practices.

In 1993, Russia began its work on setting up me Federal Treasury. It consists of the Main Department of the Federal Treasury of the Ministry of Finance of the Russian Federation and its territorial bodies in republics, areas, and regions. The tasks of the Treasury are the following: to organize and exercise control over the execution of the federal budget; to regulate relations, between the federal budget and federal off-budget funds; to exercise control over the receipt and use of the funds; to regulate relations between the federal budget and budgets of subjects of the Federation; to make, short-term projections of financial resources and to manage them; to collect and compile information about the position of federal finances, to manage and service the state internal and external debt jointly with the Central Bank.

The new Treasury is expected to require that all spending units should report their operations at the commitment, verification and payment stages. The plan is that after verification of budget allocation and compliance with existing authorization the Treasury will issue the actual payment orders against a unified Treasury account with the Central Bank. This will imply a far-reaching change of budgeting practices in Russia. The new mechanism will allow the government to exercise effective spending controls in order to have updated information on government expenditure and for debt and cash management purposes. The new Treasury is also expected to help remedy other deficiencies in the process of budget execution. Effective implementation of the new Treasury system will lead to changes outside the budget execution, such as budget classification and accounting standards.

Words you may need:

despite – не дивлячись на

lack – недолік

obsolete – застарілий

public account рахунок державного закладу

debt and cash management – управління боргом та наявними коштами

to exercise control – здійснювати контроль

receipt – отримання, надходження

internal and external debt – внутрішній та зовнішній борг

jointly (with) – сумісно (з)

spending unit – бюджетна одиниця

commitment – доручення

verification – перевірка, контроль

authorization – дозвіл

to issue payment orders – видавати платіжні доручення

updated – оновлений, скорегований

to remedy deficiencies – виправляти недоліки

accounting standards – стандарти бухгалтерського обліку

 

 

3.Read the text and say what you know about the budget process in Ukraine:

In market economies the budget is the proposed and later the authorized statement of revenues and expenditures for a period, normally a fiscal year. The government budget may show the planned or authorized expenditure of central government alone, or may incorporate also expenditures and revenues of regional and local governments.

The budget is the key instrument for expression and execution of the government's economic policy.

Government budgets have a wide implication for the national economy. There are various practical approaches to budgeting, including the administrative budget, which emphasizes the expenditures of ongoing government operations; the capital budget, which gives separate treatment to public works projects and their special financing requirements; the cash budget, which simplifies budgetary procedures, etc.

In the United States the federal budget deals mainly with expenditure programmes, and revenues are covered only briefly. The size of the budget deficit or surplus is regarded as very important. An important aspect of the budgetary process is a great influence of the Congress. The US budget is submitted in January for the fiscal year coming in July. It is then considered by several sub-committees of the House of Representatives and the Senate.

In Great Britain the preparation of the budget is the function of the Treasury, which is headed by the Chancellor of the Exchequer.

The emphasis of the British Budget is on taxation and the state of the economy.

The Budget is the Government's main economic statement of the year. It is announced by the Chancellor of the Exchequer who reviews the nation's economic performance and describes the Government's economic objectives and the policies it intends to follow in order to achieve them.

 

Words уоu may need:

authorized – дозволений, офіційно прийнятий

incorporate – включати

implication – значення

budgeting – складання бюджету

administrative budget адміністративний фінансовий кошторис

capital budget – бюджет капіталовкладень

Cash budget – бюджет наявних коштів

Chancellor of the Exchequer (англ.) – Міністр фінансів

 

ž Tests

I. Choose the correct answer:

1.A state budget is:

a) a sphere of economic relations, where takes place the financial resource’s buying and selling;

b) a financial plan of expenditures and revenues of the state;

c) a profit from the export and import operations.

 

2.The objects of the financial relations are:

a) profits, taxes, securities;

b) gross national product and national income;

c) money incomes;

d) state, enterprises, citizens.

 

3.The subjects of the financial relations are:

a) national income and gross national product;

b) state, enterprises, citizens;

c) incomes from the state loans;

d) taxes, securities, currency.

 

4.Finance is:

a) a practice of manipulating and managing money;

b) a capital involved in a project;

c) a loan of money for a particular purpose;

d) all are right.

 

5.The common assignment of the finance is:

a) to form and use money funds of the state with the help of special forms of cost motion;

b) money relations over mobilization of the financial resources in the control of the state;

c) money relations which are connected with the use of the state funds for the national needs.

 

II. Match terms in the column A with a correct definition in the column B:

 

 

 

III. Match what statements are true and what are false. Results write to the table:

 

1. Finance is an economic instrument of distribution and redistribution of the gross internal product and national income.
2. The essence of finance is shown in its functions.
3. One of the most important sign of the finance is the equality in rights of the state and the economic entities.
4. Money is the material base of the finance.
5. Finance and money have identical substance.
6. Finance is the expression of the distribution sphere of the economic relations.
7. The structure of the state budget practically didn’t change over many centuries.
8. The role of finance is growing on the macrolevel on the modern stage of the development.

Table

True
False

 

IV. Fill the tables:

a)

 

 

b)

 

 

ì Unit 2

FISCAL MANAGEMENT

I. READING

1. Stress the first syllable:

target, decade, complex, measure, mechanism, federalism, allocate, incidence, fiscal, notion, swollen

 

2. Stress the second syllable:

ensure, pursue, adopt, sustained, exacerbate, attainment, productive, arrangement, to administer

 

3. Stress the third syllable:

institutional, geographical, unsustainable

 

4. Read the text: